Moody’s lowers five South African banks

Moody's Investors Service said it downgraded the long-term deposit and senior debt ratings of the five largest South African banks by one notch to Baa2 (stable) from Baa1 (on review for downgrade): Standard Bank of South Africa Ltd., Absa Bank Ltd., FirstRand Bank Ltd., Nedbank Ltd. and Investec Bank Ltd.

Moody’s said the actions are driven primarily by (a) The weakening of the South African government's credit profile, as captured by Moody's downgrade of South Africa's bond rating to Baa2 (stable) from Baa1 (negative) on Nov. 6, combined with the banks' sizable holdings of sovereign debt securities, which links their creditworthiness to that of the national government; and to a lesser extent by (b) the challenges these banks face in view of weaker economic growth in South Africa, particularly in the context of consumer affordability pressures and still-high consumer indebtedness that will likely lead to increased credit risks and higher loan impairments for the banks.

The stable outlook assigned to all banks' deposit ratings mainly reflects the stable outlook on the sovereign rating, and the rating agency's views that the banks' lower Baa2 ratings appropriately capture the pressures from economic headwinds, particularly in light of the banks' earnings and capital buffers, the agency said.

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